• The new procedure for advance payments for income tax came into effect. According to Art. FZ N 224-FZ "On Amendments to Parts one and two of the Tax Code of the Russian Federation and some legislative acts of the Russian Federation”, the amount of monthly advance payment, payable in the IV quarter of 2008, can be assessed on the basis of actual profits, estimated as progressive total since the beginning of fiscal period till the end of the month, preceding the month, in which advance payment is made. Herewith, the amount of advance payments payable to the budget is assessed with regard to the previously accrued amount of advance payments.

Amendments to the procedure of advance payments assessment for income tax should be reflected in the accounting policy of organization. The taxpayer should notify of the transfer to the new system the tax authority at the place of its registration not later the date of advance payment, even if the estimated amount of the advance payment is negative or zero.

• From January 1, 2008 the tax period for VAT is set up to a quarter. Therefore, from this date, the assessment of separate amounts of VAT on transactions, both, VAT taxable or exempt from tax, should be made for the current fiscal period, i.e., a quarter.Table 1 presents parameters of the RF federal budget within 2006 – 2008. Within January-October 2008 the execution of the federal budget in both, income and expenditure in terms of GDP shares is slightly lower against the preceding year performance. Revenues of the federal budget for JanuaryAugust 2008 amounted to 23,1 per cent of GDP, while expenditures made 15.2 per cent of GDP.

Dmitry Medvedev has already signed the Federal Law “On amending Parts one and two of the Tax Code of the Russian Federation and some legislative acts of the Russian Federation".

2005 2006 2007 Fig. 1. RF Budget Revenue within 2005–2008, per cent in GDP As one can be seen from Fig. 1, the federal budget demonstrates some growth in expenditures in October, what is natural for the last quarter of the year, but this growth is rather moderate, and the level of October expenditures does not exceed the relevant indicator of 2007. It should be specially highlighted, that in the past two years late September - early October is the breaking point, at which budgetary assets are spent at a faster rate than during the entire year. This is happens due to irregular spending of budget funds during the year. Let us review Table 2, where the federal budget performance on key indicators, income and expenditures versus its estimates is presented for the first three quarters of 2008.

Table Parameters of the RF Federal Budget in 2006 – 2008 (% in GDP) Jan. Febr. March April May June July Aug. Sept.

Revenues 10,5 20,2 24,0 37,5 45,9 54,2 63,3 71,4 79,Expendotures 6,9 19,0 26,2 32,9 41,0 47,9 54,2 61,Source: RF Ministry of Finance, IET estimates While revenues of the federal budget within three quarters of the current year have amounted to nearly 80 per cent of the estimated budget, approved for 2008, which is a rather good indicator, the expenditures budget estimates were executed only for slightly over 60 per cent. This confirms, that again the regular expenditure execution throughout the year was not executed again. Measures, taken by the Ministry of Finance earlier this year to increase the limits for an access to budgetary funds, did % ВВП not change the situation, concurring from year to year. In the complicated situation of the global financial crisis, the sharp growth of budget expenditures creates surplus risks, that can inspire excessive inflation and threaten the stability of public finances management in the medium term.

Let us consider federal budget revenues as broken down by the major tax administrators (See Table 3).

Taxes and fees, administered by the Federal Customs Service, in 2008 exceed similar rates of the last year. This is based on the revenue from export customs duties, which have grown by 2.2 per cent of GDP for the first three quarters of 2008, as compared with the first three quarters of 2007. Since the share of export customs duties in the total tax revenue exceeds 30 per cent, namely those proceeds ensured more or less stability to the federal budget over the past year. Given the current trend towards Russian oil and gas price downgrading, this is the reason for the apparent decline in revenue, expected shortly.

For other major taxes, administered by the Federal Tax Service, there is a large backlog as to the relevant indicator of the preceding year. Within January-September 2008, the value-added tax has lost nearly 1 per cent in terms of GDP share, as compared with January-September 2007. In general, the Federal Tax Service has lost nearly 1,4 per cent of GDP within January-October 2008. It is anticipated, that this tax administrator will continue to loose in revenue due to the global financial crisis and in connection with recent amendments to the Tax Code.

Table Amount of Revenues to the RF Federal Budget in 2006–2008 (in % of GDP) January – January – 2006 October 2007 October Taxes and other payments administered by the Federal Tax Service 11,27 11,81 11,50 10,Taxes and other payments administered by the Federal Customs Service 10,76 9,86 9,98 11,Receipts administered by the Federal Agency for Management of Federal Property 0,26 0,19 0,25 0,Revenues of the federal budget administered by other federal structures 1,25 1,91 2,14 1,Total revenues 23,54 23,77 23,87 23,Source: RF Ministry of Finance, IET estimates As of November 1, 2008, the cumulative volume of the RF Reserve Fund, denominated in RUR, amounted to RUR 3572.78 billion, or 8.5 per cent of GDP and the National Welfare Fund made RUR 1,667.48 bln, or 4.0 per cent of GDP. The negative dynamics in revenues to those funds since the beginning of the year is based on the fact that oil and gas revenues are accumulated in the federal budget until they reach the annual level, and only then they are transferred to the Reserve Fund and National Welfare Fund. In 2008, revenues from oil and gas sectors transfer to the accounts of national reserve funds is started in August.

2006 2007 Fig. 2. Cumulative volume of the RF Reserve Fund and National Welfare Fund within 2006-2008, per cent in GDP Meetings of the Government of the Russian Federation in November M. P. Goldin The RF Government’s meetings addressed the following issues: the results of the performance assessment of the bodies of executive authority of subjects of the Russian Federation and the allocation of grants to those regions where the best performance indices were achieved by the results of the year 2007; the results of the implementation of the federal budget in the first 9 months of 2008; and on the effectiveness of the spending of the RF Investment Fund.

At the meeting of the Government of the Russian Federation on 13 November 2008 the report of the RF Minister for Regional Development, V. F. Basargin, was heard, from which it follows that the RF Minister for Regional Development has conducted an assessment of the performance indices of the bodies of executive authority of subjects of the Russian Federation as seen by the results of the year 2007. During that assessment, an analysis was made of their management quality, in terms of the socioeconomic development of RF subjects, in the following spheres: economic growth, incomes of the population, the population’s health, comprehensive education, primary and secondary vocational education, the housing and utilities sector, housing construction, public safety, and the organization of state and municipal administration; besides, the effectiveness of spending budget resources was analyzed.

Twenty subjects of the Russian Federation were selected as the recipients of grants. The grants to RF subjects are allocated in the form of dotations amounting to 2 billion rubles, as envisaged by Federal Law of 24 July 2008, No 198-FZ “On the federal budget for the year 2009 and the planning period of 2010 and 2011”.

The RF Ministry for Regional Development developed and submitted the draft of the RF Government’s Decree concerning the allocation of grants in the year 2008 to those RF subjects whose bodies of executive authority had achieved the best performance indices, as shown by the results of 2007.

At the meeting of the Government of the Russian Federation on 27 November 2008, the report of Deputy Chairman of the RF Government and Minister of Finance of the Russian Federation A. L.

Kudrin concerning the results of federal budget implementation in the first 9 months of 2008 was heard.

The implementation of the federal budget in 2008 has been done in accordance with Federal Law от 24 July 200, No 198-FZ, “On the federal budget for the year 2009 and the planning period of 2010 and 2011”; Federal Law of 3 March, No 19-FZ “On the federal budget for the year 2008 and the planning period of 2009 and 2010”, Federal Law of 22 July 2008 г. No 122-FZ “On the federal budget for the year 2008 and the planning period of 2009 and 2010”; Decree of the Government “On the the federal budget for the year 2008 and the planning period of 2009 and 2010”; Decree of Russian Federation of 14 November 2007,. No 778, “On measures designed to implement the Federal Law “On the federal budget for the year 2008 and the planning period of 2009 and 2010”; the other normative legal acts adopted in order to ensure its implementation; and also with total budget revenue and expenditure envisaged for the year 2008 and the planning period of 2009 and 2010.

By Federal Law “On the federal budget for the year 2008 and the planning period of 2009 and 2010” the following annual indices of the federal budget were established: revenue – 8, 965, 735.million rubles (or 21.2 % of GDP); expenditure – 7, 021, 926.9 million rubles (or 16.6 % of GDP);

• 23.2 % of the preliminarily estimated GDP volume in the first 9 months of 2008 (30, 855, 800.million rubles);

• 79.8 % of the forecasted federal budget revenue for the year 2008, approved by Federal Law “On the federal budget for the year 2008 and the planning period of 2009 and 2010”.

In this connection, the share of tax revenues in the total sum of actually received federal budget revenue amounted to 56.8%, non- tax revenues – to 43.2%. The bulk of federal budget revenue was generated by receipts against four sources of budget revenue: customs duties, value added tax, the tax on the extraction of mineral resources, and the tax on profit of organizations.

• 14.9 % of the preliminarily estimated GDP volume in the first 9 months of 2008 (30, 855, 800,million rubles);

• 65.4 % of the volume of budget expenditure approved by Federal Law “On the federal budget for the year 2008 and the planning period of 2009 and 2010”;

• 60.6 % the total sum of 2008 budget revenue and expenditure, with due regard for the alterations introduced therein.

Besides, on 27 November the meeting heard the report by V. F. Basargin, RF Minister for Regional Development, entitled “On the effectiveness of the spending of the Investment Fund of the Russian Federation”.

As of 1 November 2008, within the framework of the Fund’s operation, 21 projects of national importance were approved by decisions of the Government of the Russian Federation.

The list of investment projects entitled to government support in the form of budget allocations from the Fund, as approved by the RF Government’s order of 30 November 2006, No 1708, encompasses 14 projects of national importance:

The total cost of the projects, in the prices of each corresponding year, amounts to 1,265.3 billion rubles (with VAT), including the volume of budget allocations from the Fund – 363.6 billion rubles.

The list of projects for which, within the Fund’s framework, project documentation has been developed and approved by the RF Government’s order of 18 August 2007, No1082-r, includes 7 projects of national importance.

The total cost of the development of project documentation, in the prices of each corresponding year, amounts to 41.0 billion rubles (with VAT), including the budget allocations from the Fund – to 36.1 billion rubles.

On the whole, within the framework of the implementation of projects of national importance, approximately 2.5 rubles of the investors’ own and borrower funds (without the cost of construction of the construction objects owned by the State and by the investors under the projects for which project documentation is being developed) has been used per ruble of budget allocations from the Fund.

Beginning from June 2008, the RF Minister for Regional Development has been selecting projects of regional or interregional importance.

As of the present moment, the related federal bodies of executive authority have been elaborating on proposals for improving the procedure for forming and using the Fund, among which the following ones can be pointed out:

• simplification of the procedure for submitting and considering the applications for budget allocations from the Fund, by introducing a “one-stop shop” system and decreasing the number of attached documents to be submitted by a project’s initiator;

• approval of precisely defined procedures for the Investment Board, charged with the task of selecting the projects, to consider the applications and make appropriate decisions thereof concerning the granting of budget allocations from the Fund, and similar procedures for the Government Commission on Investment Projects of National Importance;